Home Financing Options in Costa Rica
First let me start off by telling you that there is home financing in Costa Rica. But there are a lot of stipulations and hoops to jump through in order to get a mortgage from a bank or a private financier and the amount of paperwork you will have to fill out and bring with you should easily fill one large suite case.
Some banks in Costa Rica will give a mortgage to a foreigner, but not all. Most require that a foreigner have already started the residency process or already have their residency in Costa Rica (click here for more information about residency).
Interest rates vary from bank to bank, and one of the main requirements is that you have top-rated credit rating; I am talking a credit score of 720 or higher. Otherwise, you are just wasting your time, energy, and money.
Personally I was approved for a loan 5 years ago from a bank that is no longer in business. It was bought by a larger banking conglomerate. Interest rates can vary anywhere from 6.5% up to as high as 16.9% depending on the amount loaned. Here is the real kicker: most 20-year mortgages are locked in at a set rate for the first three years, then they turn into an ARM (adjustable-rate mortgage) for the remaining term of the loan. The new adjustable ARM could be NY Prime plus 8% and even higher.
Another option to consider is getting a loan or home equity line of credit, or refinance your present mortgage in your home country. Do you have equity in your property? This could be an option to consider. Please check with your financial advisor first!
Of course, if you have the cash on hand you can certainly get a better deal with a fast closing and cold cash.
Since financing can be an issue here in Costa Rica, there are other creative ways to finance if you don’t have all the cash. Let me list a few that are very common and that I have been a party to:
- Owner Financing: You find the place you love but are short on the amount you need to get the property. Ask the owner to carry a small bridge loan for you. Usually, this works.
- Hard Money Lending: This option I highly recommend against!!! This is almost like Loan Sharking. There are individuals that have large amounts of cash and will loan to those that are in need or desperate, but the interest rates are higher than the banks, the terms are shorter and the closing points upfront are out of sight. Again DO NOT recommend this, but the option is available.
- Self-Directed IRA: What is this you say? Well Most companies that you have your IRA with say they are self-directed but in reality they are not. Thy only allow you to direct your funds in to stocks, bond and mutual funds. But there are other companies that are truly self-directed custodial companies.
- 401K Rollover: Yes I wrote 401K. It is very easy to do, as I did it to purchase real estate as well. Basically you would ROLLOVER your present 401K to a self-directed IRA, not withdrawal it so you do not have to pay taxes or penalties.
Most financial advisors and planners, and even the big Mutual fund companies, will tell you that you cannot use your IRA or 401K to purchase real estate. They will try to get you to move money in to a real estate trust or fund. How come they do this you may ask? Because there really is no incentives for them to do so (meaning no commissions, only annual fees for maintenance and fiduciary duties). However, with this option, there are solutions that can help you invest in real hard assets, such as real estate and other property-based assets. Of course, there are federal rules and regulations pertaining to the use of IRA/401K to buy real estate.